Written By: - Date published: 6:48 am, November 18th, 2008 - 69 comments
Categories: national/act government, tax -
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Part of the National/ACT government’s agreement is that a top tax rate of 30% will be the target for the ‘medium term’. Such a cut would cost about $2 billion a year.
Now, I have nothing in principle against reducing tax (and nothing in principle against increasing it, for that matter). It’s a question of trade-offs, which is greater benefit: the services the tax could pay for or the tax cuts, and who gets those benefits? $2 billion a year, that’s a lot of hip operations, so it’s worth asking who would benefit from replacing Labour’s legislated tax cuts with National’s current programme and a 30% top rate added to it (ie. 30% top rate kicks in at $50,000).
Hmm, maybe it will look less like pillaging ordinary Kiwis’ social wage to give the rich a bonanza if we do it in graphical form.
Maybe not.
Now, I can already hear our righties with better ideology than maths saying ‘yeah but when you cut taxes you have to give more to the rich’. That’s not true, of course, the current tax cuts cap out at $55 a week for anyone earning $80K or more. Anyway, the Right’s tax cuts don’t just give more to the rich, they give more to the rich as a percentage of their incomes.
$2 billion a year either coming out of public services or paid for by more debt to pay for massive tax cuts to the already very well-off. It would be ordinary Kiwis who would ultimately pay for this extravagant gift to the rich. Doesn’t seem to me that Mr Moderate has the mandate for that.
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Keeping their own money is not a gift. Taking it as tax is more like a gift from them (albeit compulsory).
If you believe, as I do, in the basic goodness of human nature then you’d probably not be so worried. No doubt they’ll spend much of that extra cash in hand on charity… after all, what’s the marginal utility of an additional dollar spent on comforts versus helping out a cause you’re dedicated to after a certain point?
Oh, I forgot, somehow the left finds private charity to be potentially demeaning for the recipient… as if being beholden to the benevolence of politicians whose spending is driven by ideology over practicality and who may have no particular passion for your need beyond how many other voters may share it is any less demeaning.
My final typical* right wing argument for the day is that leaving more money in the economy will likely stimulate the economy so the $2B reduced take is an over-estimation since the new tax rates will apply to a larger base over time than would’ve occurred under the more punitive tax regime. There may be no reduced take at all over a medium term horizon.
* Yeah, I admit they’re typical… just trying to move the thread along
["leaving more money in the economy will likely stimulate the economy" what do you think the Government does with tax? Burn it? Bury it? The money is spent in the economy too. SP]
Camryn, that didn’t work in the 80′s/90′s why would it be different this time?
Didn’t it work in the 80′s/90′s? We can’t tell without a crystal ball, but it seems likely to me that we would’ve had a lot less of an economy in the last few decades without the reforms of the 1984-1993 (or so) period. It seems highly likely to me that much of the extra social spending of the last nine years was essentially paid for by those reforms. I think that the disconnect in time between pain and gain makes many people unaware of the trade-off, and feeling like we can afford the nice-to-have things (aka. Labour in government) all the time.
All I really ask from the left is for Labour to spend wisely when it does spend, and to keep the foot on the gas in the good times a bit more so National/ACT don’t have to be so drastic whenever they’re government. Still, I think that my wish is largely and increasingly the case these days. I would’ve liked to see slightly higher proven results in health but otherwise Labour did a decent job of spreading around the benefits of the previous governments without screwing things up too bad. Maybe 6 years would’ve been enough and we could’ve started focusing on getting the engine up to higher revs before the downturn…. but, again, crystal ball. Who knew?
Six years into Labour’s term we had record unemployment and rising commodity prices. Generally you don’t put your “foot on the gas” when there is limited productive capacity in your economy. Better to pay down debt and hold surpluses for a rainy day. Labour did the latter which puts us in a strong position compared to our main trading partners. In my opinion their tax cut package dropped the surpluses into the economy too quickly but that was a political move.
National now has a lot of space to increase debt to stimulate the economy but, as I explained in my “stimulating” post, they are going about it in the wrong way. Watch as their top end focused taxcuts disappear into debt repayment, savings and (for the very top) are exported. Very little of this will be stimulatory.
As ever, SP concentrates on the emotive issue painting Labour as the good guy when there is a an overarching problem Labour has created.
Corporate tax rate is now 30%, trusts are taxed at 33% and various savings vehicles are at rates lower than the top marginal rate.
Any sensible rich prick able to do so will be able to significantly reduce their average tax rate. Apart from the unfairness (it’s not open to wage and salary) earners, it’s clearer inefficient and encourages tax avoidance.
Regardless of the % of tax, those who earn more will still pay significantly more tax which you omit.
In terms of the substantive arguments against the trickle down/lower tax argument, the following is useful:
Source
How they will be able to afford this sort of tax reduction is a mystery. The tax take will be down since unemployment is up. I notice that Key is already readying NZ for a bunch of cuts to services:
“But the prime minister-in-waiting has also thrown a dose of cold water over the victory celebrations ahead of his first Cabinet meeting tomorrow, telling his team there is less money to spread around and that they must find savings.”
What he’s leaving out is that they need to make cuts so they can afford this sort of tax cut later on.
Camryn, your whole trickle-down, the rich will support the poor through charity won’t work here. We don’t have a sufficient base of very wealthy people in this country to make a real difference.
Take arts patronage for example, in the US there is a lot of arts patronage from the wealthy to create an arts scene that doesn’t rely on direct government funding, here there aren’t the numbers of arts minded wealthy to function like that so the goverment is forced to support the arts (or alternatively see it disappear). But can I guarantee Key will be telling us in six months that we can’t afford to fund the arts anymore and that the arts should seek charity funding.
IB – Good points re: labour market capacity and the tendency of the rich to save.
Still, there is always room to boost the economy by getting out of the way. The top of the cycle would’ve been a good time to look at the benefits of cutting red tape and increasing labour market flexibility, but those aren’t Labour-style things.
Also, regarding that saved money… I think our overall saving rate could’ve done with a boost. Consumer spending might not be taking such a hit now if the wealthier members of our society had been able to put a little more aside.
Yes we can afford it, just you have to pay for everything.
Daveski, question for your source which they have left out. What services do you pay for in those countries that Roger Kerr mentioned?
By the way, old Roger may have improved in learning about economics as back in the 90s, he was highly criticised by economists
“If you believe, as I do, in the basic goodness of human nature then you’d probably not be so worried.”
I don’t see why. Taxation is compulsory precisely because private charity is subject to market failure, whatever the intentions of those who would like to be charitable. Private charity is an appallingly inefficient means of helping people satisfy their preferences for helping others. You could have a population that is twice as nice as the current one and private charity would still be inefficient. That’s why no sane society relies on it in place of taxation funded social welfare.
Taxation is just the portion of our income we spend collectively rather than individually in order to avoid market failures. Anyone who wants the tax take to be reduced so that they can spend more on charity needs their head examined.
Very good post by Tim Watkin on http://www.pundit.co.nz on some tough questions that need to be asked about the coalition deal.
I wish your graphs would reflect the reality that under both Nat and Lab beneficiaries got no tax relief at all. I also wish someone could explain why.
And before anyone tries to argue that benefits are not taxed? Yes they are.
Of course, under Nat I suppose that since the tax cut to the JK’s of this world are roughly x2 the weekly benefit that they will be sponsoring two beneficiaries each, writing it off as a charitable donation in their end of year tax return, abolishing WINZ into the bargain, and I wont have to puzzle any longer as to why tax cuts from both parties appear to apply to workers only rather than tax payers.
I suspect taxation in NZ would equate to at least 50% of average income. Consider:
Taxation on income
GST
Tax on fuel
Tax on alcohol
etc etc etc
Then we have rates (a local body tax), dividends paid to the government from SOE’s etc etc.
We are actually coming very close to pure communism in this country. I believe we are grossly overtaxed creating tremendous wastage due to inefficiencies caused through wasteful government expenditure. So, taxation in NZ is simply far too high.
Furthermore, taxation structures in NZ are a major impediment to NZ moving forward as a nation. Taxation rates need to be set so they provide incentives for people to move ahead and improve their lot in life. Current tax structures simply reward mediocrity. What is the point of trying to improve your lot in life if progressively more is stolen by the government as income increases?
I believe we have created a society based on envy in this country. I heard someone make the comment recently about the difference between America and Australia (as a proxy for NZ) with respect to wealth. The comment was that in America, someone would walk past a mansion and think “one day I will be living in a house like that”. In Australia (and I suspect NZ) someone walking past a similar mansion would think “I want to get that rich prick”.
Travellerev – please stop ruining every bloody thread with your boring and longwinded obsessions. You have your own blog, use it.
Any more of this off-topic crap and you’re banned, I’m honestly sick to death of it.
I’m going to go through now and delete every off-topic comment. Apologies to anyone caught in the crossfire.
Tane,
So your OK with people throwing tantrums and not OK with supported arguments. Very enlightening.
[Tane: I've deleted every comment relating to your off-topic comments, including other's people's. I've nothing against you Ev, but you're destroying our comments section.]
I find these arguments amusing. National and Act are for cutting tax for the rich. This is simply because that is who they are, who funds them and who provides them advice.
Evidence?
1) They are rich.
2) They are backed by large anon donations to trusts.
3) BRT, Crosby/Textor and soon armies of high paid consultants advise them.
Why the argument about why they are doing this? There is NO EVIDENCE that the trickle down works even slightly as well as opther methods. In fact, quite the contrary.
Evidence? (see the image at the bottom of the page)
http://www.ourfuture.org/blog-entry/2008104427/tax-cuts-ineffcient-stimulus
Now this IS a US example, but then it would be hard to argue that things are so different here the trends would be completely reversed?!
Talk of charity is just ridiculous. There is no evidence that charity from the rich is even a partial solution to anything. What argument are you making that makes this even slightly acceptable?
Even arguing this point as if it was slightly sensible would ignore that fact that your average NZer does NOT WANT TO TAKE CHARITY FROM RICH PEOPLE LIKE A PAUPER IN MEDIEVIL ENGLAND!! I would suggest that if key were to suggest this as a way forward it would be time for a bloody revolution of some sort.
hrm…excuse me. I have an allergic reaction to obscene ideas.
I believe we have created a society based on envy in this country. I heard someone make the comment recently about the difference between America and Australia (as a proxy for NZ) with respect to wealth. The comment was that in America, someone would walk past a mansion and think “one day I will be living in a house like that’. In Australia (and I suspect NZ) someone walking past a similar mansion would think “I want to get that rich prick’.
That is more individual attitude same as some ‘rich prick’ are greedy and not greedy.
Think you will find there are many countries with the same sort of tax system to ours and regardless of what rate, they would complain it is too much!!!
Define the right level of tax if too high, is there too low??? I will repeat myself, ask the IRD as they have several different kinds of tax models and their consequences which people forget about rather quickly.
tsmithfield
November 18, 2008 at 9:37 am
No, what I would be thinking as I walked past is ‘nice place’, but then I’d be expected to play the silly one-upmanship games those people do, and have cheap labour to clean my mansion and feel really embarrassed every time I made a speculative run on my own country’s $1. I’d also wonder how many people I’d shafted to get where I was.
Nah, I’ll stick with the owned 3 acres, couple of beasties, 2 neat young adults still nesting, and an other half who while not agreeing to every opinion I hold doesn’t try to prevent me from having them.
Thanks Tane. How long did it take for you to move to the fascist right?
I have always looked to your blog for the other view as expressed by the media and expound that to all who want to listen. Now it appears that I might not be getting all the sides of the argument. I posted on your thread to provide information which I found damning on the National incoming Government. That gets wiped away too. Whose side are you on?
PS I have filed a copy of my other post, should you wish to behave like an equal opportunity blog owner and re-instate it.
[Tane: Jum, I'm sorry if you got caught in the crossfire, but I have to a blog to maintain. I put a lot of voluntary time and effort into running this thing and the last thing I want is to have it destroyed by travellerev's obsessions. I've had countless complaints through the email from people turned off commenting by her. She's posting off-topic, for pages on end, and hijacking nearly every thread we put up. I'm not stopping anyone from discussing the issues, I'm simply trying to make this a place for constructive discussion that doesn't revolve around one person's obsession. Hurling abuse at me and calling me a fascist doesn't help the situation, or your credibility.]
I love the idea of tax cuts. But for anyone to think rich people are charitable should forget it now. The same goes for the likes of Geldof, Bono etc etc.
Clearly because I swing to the right I don’t have a problem with these tax cuts. National wanted bigger tax cuts for the rich but due to the economic problems couldn’t justify it thus why big tax cuts for high income earners was removed. A sensible move. The agreement between Act-National is sensible too in that Act does have a clear taxation policy in favour of flatter taxs and as such it should have been expected that they would try and achieve this.
However, the agreement does say “medium term”. Hopefully, that means a Tax cut to 30% will take place only when the economy is recovered, deficits are tracking downwards and other policies National promised are delivered. At the very least, these tax cuts should only take place when the economy is recovering.
gingacruch
looks like you are apologising for future natoinal policy
are you using this blog as a beltway leakjob to soften the blow when the diehard act jobs start whingeing about unrealistic lunatic taxation rates
No randal, I’m working with the few conservatives inside the Labour Party to ensure that Labour falls on the wayside in their left ways and actually becomes a right wing party.
” Yeah, I admit they’re typical just trying to move the thread along
["leaving more money in the economy will likely stimulate the economy" what do you think the Government does with tax? Burn it? Bury it? The money is spent in the economy too. SP]”
It seems that some haven’t done the first level of economics at teritary level and seen the national economy model
tsmithfield
IMO, the person in the above quote who is envious, is the one who wants to live in a the mansion they walked past. Wasn’t that Key’s response to seeing richer people’s houses that he rode his bike past as a boy?
My response is that I’ve never had any desire to live in a rich house, or own loads of stuff. And there seems to me to be something wrong with a world where some people have loads more money & stuff than they need to live a satisfying and successful life, while very large numbers of people are struggling just to get enough to survive,
So it seems to me, when people on the right accuse us lefties of the politics of envy, they are actually applying their own values to us, and failing to understand that, in fact, our values are very different to theirs.
[Tane: Ev, now you're involving me in your conspiracy theories. You have your own blog, put your thoughts there. Where it's on topic, feel free to mention them here. Just stop jacking our comments section with your own personal obsessions. That's all I ask.]
Irish Bill refers uses the oft heard statement about Labour , in the 9 years they were in power ” Putting away money for a rainy day”
Its been drizzling a bit lately with the real rain still to come and we have run out of money big time.
The latest financial update showing it to be worse than the previous scary number.
On another point I think a fair way of looking at tax cuts would be to show actual dollars in tax paid as opposed to the dollar amount saved .
This will show how much different individuals contribute to running the country
Mark M. We paid down debt, now we are in a position where we can afford to borrow some more while the economy is going through a rough patch.
Think of paying down debt like putting money in a savings account – you get yourself in a good position while you can afford it. When things get tough you draw down your savings (increase debt).
But come ON, guys, tax cuts to the rich did SO WELL to stimulate the US economy over the last 8 years. Honest they did. And That Nice Mr Key totally promised to donate some of his salary to charity! I’m totally forecasting an end to child poverty once all his mates figure out that giving to charity is the new adopt-a-Third-World-orphan.
some people really need a lesson on what a conservative is
i.e. someone who resists all change because they believe it is liable to decrease their economic and psyhcological well being rather than increase it.
simple really and they justify their whole weltanschaung on keeping that carrot rammed up tight.
and gingacrunch I dont believe you for a minute that you are involved with the Labour Party
If you were a worker then you would be looking to increase the benefits to the poeple that ensure the smooth running of our society and produce the goods.
Not sucking up to the owners, money market sharpers and young fogeys who want to bleed everybody for anything so they can run back to europe and buy a house in the south of france to escape their duties to the community that fostered them in the first place
“Mark M. We paid down debt, now we are in a position where we can afford to borrow some more while the economy is going through a rough patch. ”
Something that us as individuals should have done as well
“I’m totally forecasting an end to child poverty once all his mates figure out that giving to charity is the new adopt-a-Third-World-orphan.”
He can adopt me, Mr Key my account number is ……..
The rich have worked really hard for their money. They have displayed the skills necessary for our economy to thrive; enterprise, hard work, determination and innovation. They deserve a reward for such attributes.
I have to agree with SP on this.
Many of the rich work hard to make money for themselves. There are many others who opt for a lower financial return in order to work hard for the betterment of society and to help others eg nurses – or those who do a relatively low paying day job, and work hard for no money for the betterment of society and other people in their spare time.
Some people get high paying jobs because they had the luck to be born into the right family with the right connections, and don’t necessarily work much harder than anyone else.
I often see people who work really hard for an average wage, and wonder how much harder any person could possibly work – it doesn’t seem possible they anyone could work that much harder to justify the exhorbitant salaries some people earn.
Milo: I don’t think anyone is arguing they don’t deserve a reward. I think the relative size and shape of the reward is what’s at issue.
L
tane
I have been reading this blog for quite some time now and I have never been offended by ev nor do I consider her posts to be long or offensive
are you sure you are notjust giving in to the right wing things who want the world to run their way
for the last three weeks this blog has been overun by righties posting long meandering blobs of material that say nothing
furthermore it is typical rightwing tactics from hooten and his mob to gang up on people and make mass complaints
sometimes I read the moderators comments here and they are definitely not up with the play on who is spamming and who is talking gibberish
The rich have worked really hard for their money. They have displayed the skills necessary for our economy to thrive; enterprise, hard work, determination and innovation. They deserve a reward for such attributes.
Ummmm back the truck up here a bit, there is old money and new money, be more old money than new money. So would disagree with your generalisation
Define rich!!!
Clearly, Lampie, ‘rich’ is anyone earning over $60k, or is that $48k?
No seriously, ‘rich’ is in the wallet of the beholder.